Hire-Purchase Transactions: A synopsis of the 10-Ps’ test

[easyazon_block add_to_cart=”yes” align=”left” asin=”1112044760″ cloaking=”default” layout=”left” localization=”default” locale=”US” nofollow=”default” new_window=”default” tag=”thecorpro-20″]The Law Relating to the Hire-Purchase System : With An Appendix of Forms[/easyazon_block]As gold is ever separate from stone, so also are hire-purchase transactions different from other commercial transactions. Literarily, “to use or check something to find out whether it works or it is successful” may be referred to as a test. Qualities of the hire-purchase have berthed a test that highlights its difference. This test is the distinguishing test of the 10-Ps. A more detailed article on the 10-Ps’ Test can be found here.

The definitions of the term “hire-purchase” as found in statutes, case laws, textbooks are strengthened by a comparison of hire-purchase transactions with other commercial transactions. This comparison is greatly facilitated using the 10-Ps’ Test.

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As may be generally understood, the foremost rational for the adoption of the hire-purchase system is to allow credit to someone who is unable to pay cash for the goods he wants and would be happy to make some deposit payment and thereafter pay the balance (with interest) by installments.

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Nature of Hire-Purchase

Section 20(1) of the Hire-Purchase Act, Cap. H4, Laws of the Federation of Nigeria 2004 (HPA), defines the term “hire-purchase” as “the bailment of goods in pursuance of an agreement, under which the bailee may buy the goods, or under which the property in the goods may or will pass to the bailee”. Similarly, in the case of Samuel Aro v Joe Allen & Co. Limited (1979) 2FNR 292, Okagbue, JCA, defined hire-purchase transaction thus: “…essentially, a hire purchase system is a system whereby the owner of the goods lets them on hire for periodic payments by the hirer upon an agreement that when a certain number of payments have (sic) been completed, the absolute property in the goods will pass to the hirer, but so however, that the hirer may return the goods at any time without any obligation to pay further balance of rent accounting after return; until the condition have (sic) been fulfilled the property remain in the owner’s possession.”

It may therefore be contended that a hire-purchase is a transaction between two parties, the owner and the hirer, where the owner parts with his goods to the hirer for the purpose of possession and use, subject to some periodic payments to be made by the hirer, and which the hirer may at the end of the agreement, exercise his option to purchase in other to acquire property in the goods.

There are two parties to a hire-purchase agreement: the owner and the hirer. The owner is the person who has property in the goods, whereas the hirer is the person to whom the owner has given possession and use of the goods under a hire-purchase agreement. The HPA makes provisions for the definitions of both parties.

Beyond the two parties to the hire-purchase agreement identified above, there are situations in hire-purchase transactions where other third parties are part of the transaction. Examples of such third parties could be dealers, bankers, financiers, etc. These third parties are, strictu sensu, not parties to the hire-purchase transaction. They are, at best agents of one of the parties towards the conclusion of the hire-purchase transaction.

2. Products

Goods which are the subject matter of hire-purchase transactions are limited under section 1 of the HPA to those goods whose monetary values are not more than two thousand naira and motor vehicles. However, concerns are inevitably raised as to the limitation on monetary values of goods other than motor vehicles.

3. Possession

It is the law that the owner must part with possession of the goods under a hire-purchase agreement. The hirer must be in possession and use of the goods. The owner is stopped, otherwise than by an action and except as provided by section 9(5) of the HPA, from enforcing any right to recover possession of the goods from the hirer. Subject to breach of the law, section 9(2) will apply.

4. Property

Property (that is, title in the goods) is vested in the owner, and remains with the owner throughout the duration of the hire-purchase agreement until the hirer exercises his option to purchase the goods. However, the hirer has possession and use of the goods. Property can pass to the hirer upon the payment of the last installment and his exercising his option to purchase the goods.

5. Price

In a hire-purchase agreement, the owner is obligated to communicate to the hirer, both the hire-purchase price, which is (cash price + interest) and the cash price. This is expected in other to afford the hirer a better chance of considering whether or not to go ahead with the transaction.

6. Payment

The mode of payment in a hire-purchase agreement is quite different from that of an outright sale. The hirer in a hire-purchase agreement makes a deposit after which he pays the subsequent balance in installments, as agreed with the owner, and according to the agreed frequency (i.e., yearly, quarterly, monthly, etc).

7. Place/Premises

The owner’s place or premises is usually the place where the hire-purchase transaction takes place. However, the owner’s agent can act on his behalf, and the hire-purchase transaction can take place in the owner’s agent’s premises.

8. Procedure

Section 2 of the HPA provides that “before any hire-purchase agreement is entered into in respect of any goods, the owner shall state in writing to the prospective hirer, otherwise than in note or memorandum of the agreement, a price at which the goods may be purchased by him for cash”.

The hire-purchase agreement must be in writing. The hirer must sign himself, and no one else can sign for him. However, the owner can either sign himself or appoint an agent to sign on his behalf. Furthermore, the hire-purchase agreement must contain the following: the hire-purchase price and the cash price of the goods; the amount of each installment payable; the payment date for each installment; the deposit paid by the hirer; a statement of the true rate of interest; the list of goods covered by the agreement; a notice informing the hirer of his right to terminate the agreement; the manner of such termination; and the restriction on the owner’s right to recover possession of the goods.

A copy of the document must be sent to the hirer within 14 days of making the agreement. Non-compliance may render the agreement unenforceable by the owner, but the hirer can enforce the agreement.

9. Provisions

Section 3 of the HPA provides for prohibited provisions which if stipulated in a hire-purchase agreements are void. The implication of the prohibited provisions is that an owner is precluded from enforcing any right of action against the hirer over such provisions in the hire-purchase agreement. These provisions are contained in section 3(a) to (f) of the HPA. It is noteworthy that if a hire-purchase agreement contains these prohibited provisions, the agreement itself is not void, but those prohibited provisions are void. In other words, the hire-purchase agreement will be construed as if those provisions were not in the agreement at the first place.

In the same vein, section 4 of the HPA also provides for implied terms, which a hire-purchase agreement may be silent on. Subsections (1) and (2) provide for conditions and warranties implied in the hire-purchase agreement. Subsection (3) stipulates that these conditions and warranties shall be implied in the hire-purchase agreement. An owner is not allowed to effect any provision in the hire-purchase agreement which excludes such conditions and warranties specified in subsection (1), otherwise than if he is able to prove that he has made such provision known to the hirer before the agreement was made.

10. Penalties

There are penalties provided for in the HPA for infractions of the provisions of the HPA. These penalties, as provided for in the HPA, distinguish hire-purchase transactions from other commercial transactions.

Conclusion

Hire-purchase transactions serve a useful purpose as they add to the development of the economy. However, in Nigeria, awareness and utilization of hire-purchase is very low compared to some other countries. Nevertheless, hire-purchase transactions remain useful commercial transactions. A reform of the HPA could facilitate their increased usage.

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The 10-Ps’ Test affords us a yardstick for distinguishing hire-purchase transactions from the myriads of commercial transactions present in modern times. It may well be that there could be more than 10-Ps. Should you have other Ps which could be of relevance in distinguishing hire-purchase transactions from other commercial transactions and which have not been addressed above, you may wish to share same in the comments section below.

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According to the 10-Ps stated by Mr Johnson, in my own view or suggestion in reforming the HPA the hirer should be given the right to produce an agent who may sign on his behalf, in the sense that the HPA only gives the owner the right to sign or his agent also may sign on his behalf in entering into a hire-purchase agreement. One of the 10-Ps stated by Mr Johnson which is “PROCEDURES” in entering into HPA as was provided in section 2 of Hire-Purchase Act, which only gives right to the owner to sign or his agent sign on behalf of him and restrict the agent of the hirer to sign on behalf of the hirer, that is to say that in entering into hire-purchase agreement only the hirer is obliged to sign. My position is that in the reformation of the HPA, the right of an agent of the hirer to sign should also be given in entering into the hire-purchase agreement. It is also believed that the Hire Purchase Act also gives relief to the hirer in entering into the transaction. In conclusion in reforming the HPA there should be a provision which gives the hirer right to produce an agent who may sign on his behalf.

I align with your view, but then again I see no reason why an individual hirer should have an agent to sign the hire-purchase agreement on his behalf. By individual hirer I mean one man or person. A small-scale businesses or even large-scale businesses which are parties in a HP agreement are the type of hirers that should have exclusive rights to agent to sign on their behalf.

@ Ebenezer, I actually think in your words “individual hirers” can have agents also. In the event that he/she becomes indisposed due to unseen circumstances e.g., sickness or unavailability, the agent can step in and with authority to sign the documents relating to the hire-purchase agreement.

This article is articulate and reflects the brain child of the HP scholar Dr. Nat Ofo’s 10-Ps’ test. However, perhaps the 10-Ps can be shortened to a lesser number for easier and faster understanding; other than that, this can be said to be gold separated from stones!

The comparison of hire purchase transaction with other commercial transactions is greatly facilitated using the 10Ps’ test. This work helps to give more insight to students, businessmen, scholars and so many people; a well grounded understanding of hire-purchase transaction vis-a-vis other commercial transactions. Brillant work Mr Johnson!

It has been said that the HPA tend to protect the hirer who is the weaker party in a HP transaction. This is seen by stipulating some formalities with respect to HP transactions. Some of these formalities are tersely highlighted by Johnson in his synopsis of Dr. Nat Ofo’s 10-Ps’ test, particularly under No. 8 (Procedure) of the 10-Ps’ Test.

Supposing Tom obtains a car 9months ago from Jerry’s Motors Ltd on HP, of which a memorandum of the HP agreement, containing; the HPP of the car, the amount of deposit to be made, and the amount of the monthly instalments payable on the agreement, was sent to Tom 3weeks after the date of the HP agreement. And now, Tom is in breach of the agreement, having failed, refused, and/or neglected to pay the HP rentals within the last 3 months.

Jerry’s Motor Ltd is considering instituting an action against Tom, what are the legal chances of Tom & Jerry separately in this case?

In an attempt to answer jerry’s question ,according to section 2 (2d) of the hire purchase Act the owner must deliver the memorandum of the hp agreement 14 days after the agreemant has been made to the hirer,if he is in breach of this provision the hp agreement will be treated as void ab initio.so therefore jerry will fail in his action against tom for breach of their hire purchase agreemant because he was first of all in breach when he delivered the memorandum of the hp agreement 3weeks after the agreement was made.And in response to ufuoma’s question the hirer will not be liable to pay any sum if he decides to purchase the good at the end of the hp agreement if he has completed his instalmental payments and is not owing any sum.

Brilliant work Mr. Johnson, but I think the issue under No.3 (Possession) of the work which states that unless by an action, the owner cannot recover possession of the goods from the hirer (section 9(1) H.P.A), should be considered because sometimes, our court process is very slow in its procedure and by the time the owner must have gone through this rigorous process to get an order, his goods which are at the point of damage must have been damaged. So I think the way forward is that owners should be allowed to recover possession of goods from the hirer when the hirer has defaulted and he should do that in a manner that would not lead to public disorder before the hearing of the case by the court.

Basically, I think the provision of sec.3 is harsh on the owner because in the law of contract, parties to a contract are allowed to include whatever terms provided they are not illegal. So, once the parties have agreed to include those provisions which have been stipulated by sec.3 of this H.P.A. and have agreed that it should be binding on them, they should be allowed to carry on with their agreement.

This is a very nice piece….one question…when a hire purchase agreement comes to an end and the hirer wants to exercise the option to purchase the goods, does he still pay the normal amout for the goods even after paying the whole sum during the HP or will he be entitled to pay a lesser sum of money?

As noted by Akpata, J., of the High Court, Benin, in Onojefegwono V Agunbiade & anor, …before the hirer can exercise his option to purchase the goods, he must have paid the last instalment.

The payments made by the hirer are made up of repayment of the cost price of the items and the interest element of the credit facility afforded the hirer. Thus, the hirer does not have to still pay the normal amount (cash price) for the goods, but he must elect to purchase the goods if he so desires. In addition, he may be required to pay a token depending on the agreement.

the hirer has an inalienable right to terminate the hire-purchase agreement.however, in the event that such right is not exercised by the hirer before the pariod he is to pay the last installment, he yet reserves an undeniable right to exercise his option of purchase. ordinarily speaking, his option to purchase is evidenced in the fact that he must have completed completed thepayment of the hire-purchase price, which is both the cash price + the interest. even when he choses to forego his option to purchase,which is most likely to be impossible, he is bound to make no further payments for the goods, depending on the terms of the agreement.

The hirer has the inalienable right to terminate the HPA but with the condition that he must fulfil the MINIMUM PAYMENT REQUIREMENT, which is 50% of the HPP. Even having paid up to this minimum requirement, he has to pay up any outstanding instalment if any. Meanwhile, in the event that the hirer has paid more than the 50%, he has no refund from the owner but at his own peril or cost.

If the hirer chooses to exercise the right to purchase the good,he does not have to pay the whole amount for the good especially if he chooses to exercise this right after he has paid all the installments. Whatever sum the hirer is liable to pay for the purchase of the good will be inferred from the terms of the hire purchase agreement or from a mutual decision of both parties.

@Praise, a hirer is mandated by section 2(2)(a) to sign the note or memorandum. Therefore, he can’t have an agent, and I think what Ebenezer means by individual hirer is like when a person is hiring beause juristic persons can also hire. Igwe philipa

@Ada,I do not really align myself with that section because I think that as far as the hirer has signed the memorandum he ought to have an agent so that the possession of the goods will be able to pass to him.

@Jerry, do you mean that in some cases in hire-purchase transactions the hirer may still be required to pay a token after paying all his installments and he is about to exercise his option to purchase?

@ONOME THE TOKEN TO BE PAID AFTER THE LAST INSTALLMENT HAS BEEN MADE DEPENDS ON THE AGREEMENT OF BOTH PARTIES. THE TERMS ARE USUALLY DRAFTED BY THE OWNER’S LAWYER WHO ON THE DISCRETION OF THE OWNER INSERTS SUCH CLAUSE THAT A TOKEN MUST BE PAID AFTER THE LAST INSTALLMENT HAS BEEN MADE BEFORE THE HIRER CAN EXERCISE HIS OPTION TO PURCHASE.

In an attempt to answer jerry’s question ,according to section 2 (2d) of the hire purchase Act the owner must deliver the memorandum of the hp agreement 14 days after the agreemant has been made to the hirer,if he is in breach of this provision the hp agreement will be treated as void ab initio.so therefore jerry will fail in his action against tom for breach of their hire purchase agreemant because he was first of all in breach when he delivered the memorandum of the hp agreement 3weeks after the agreement was made.And in response to ufuoma’s question the hirer will not be liable to pay any sum if he decides to purchase the good at the end of the hp agreement if he has completed his instalmental payments and is not owing any sum.

i. Can Jerry repossess the goods immediately?
ii. What if Tom wants refund of previous instalment paid?
iii. How can this void agreement be ratified?
iv. Assuming Tom so desire the goods, and wish to enter into a new (valid) agreement on that same goods, will the earlier outstanding be forgone?

In view of your answer to Ufuoma’s question, the hirer after completing his instalmental payments, may sometime (depending on the agreement) be require to pay a token as a sign of his commitment if he decides to purchase the goods.

Johnson has made a simplified version of the 10Ps’ test. It is expository enough to comprehend for anybody who did attend classes of our erudite lecturer, Barr. Nat Ofo. Life is truly a learning process. As a graduate of almost 14 years, I used to think as soon as the hirer pays the last instalment of the HPP, the property or title in the good automatically goes to the hirer as he assumes the new owner of the hire-purchase good or subject of the HP. But for this course, I have known what HP is all about especially the exercise of the wisely compulsory option to purchase with a token before title passes. What I infer by wisely compulsory is that though the option is not compulsory depending on the terms of the HP Agreement, but it would be unwise for a hirer who has made the last payment to opt out without getting title for all he had paid for. However, on the token to be paid, in view of the proposed review of the the HPA, as my recommendation, instead of leaving the amount vague and unspecified, as a standard no matter how minimal it could be, a certain percentage of the HPP be decided as the token to paid to exercise the option of purchase. Such would be the benchmark of any HP agreement .

@Suzy, HP is quite different from a co-operative society. While HP is a commercial transaction involving two parties (and sometimes three parties according to Isioma MENSAH), co-operative society is a form of partnership. A co-operative society is an association of persons who have voluntarily joined together to achieve a common economic and social end by forming a jointly-owned and democratically controlled business organisation.
I am sure it is treated under company law, so maybe you should consult those presently in 500 Level.